Work on legacy capital instruments monitoring concluded
The European Banking Authority (EBA) has concluded its dedicated work on monitoring legacy capital instruments. This decision aligns with its long-standing expectation for these instruments to be phased out over time.
Phasing out complexity
The European Banking Authority (EBA) has formally concluded its dedicated work on monitoring legacy capital instruments, a decision consistent with its long-standing expectation for these instruments to be phased out over time.
This move is crucial for maintaining a clear subordination ranking within institutions' capital structures and for avoiding unnecessary complexity in the prudential framework.
Legacy instruments are defined as own funds instruments that benefited from grandfathering provisions under the Capital Requirements Regulation (CRR1 and CRR2).
The EBA has consistently advocated for their elimination to ensure that only fully compliant capital instruments contribute to the stability and resilience of the banking sector.
This conclusion marks a significant step towards a more streamlined and robust regulatory environment, reinforcing the EBA's commitment to a harmonized and transparent capital regime across the European Union.
Years of guidance and monitoring
The EBA has devoted significant attention to legacy instruments in recent years, monitoring own funds and eligible liabilities.
This included publishing two Opinions in 2020 and 2022 on their prudential treatment, offering essential guidance to institutions and competent authorities.
The EBA also regularly monitored the stock of these instruments, assessing individual cases.
Given the extensive work completed and confidence that competent authorities will continue to oversee remaining limited cases based on provided guidance, the EBA will no longer prioritize dedicated monitoring.
It will, however, maintain its overarching review of own funds and eligible liabilities quality.
A necessary simplification
This decision marks a logical and necessary simplification for European banking capital structures.
While the direct impact on overall capital levels may be minor, it significantly boosts transparency and regulatory clarity.
The EBA's refined focus allows for more efficient supervisory resource allocation, targeting broader risks over legacy issues.